Republican presidential candidate Marco Rubio and adviser Todd Harris look at news reports about the campaign on Harris' phone before a town hall meeting at the Southside Christian School on Feb. 11, 2016, in Simpsonville, South Carolina.

Photographer: Chip Somodevilla/Getty Images

While presidential candidate Marco Rubio’s tax proposals would put more money in taxpayers’ wallets and in business coffers, their benefits would be concentrated at the top end of the income scale, and they could produce large, “unsustainable, budget deficits," according to a policy group’s analysis.

The Republican contender’s proposals, which include eliminating taxes on capital gains and reducing the top corporate and individual tax rates, would reduce federal revenue by $6.8 trillion over the next 10 years, according to a report by the Tax Policy Center. The center is a joint project between two Washington nonprofit research groups, the Urban Institute and the Brookings Institution.

By eliminating taxes on investment and savings income, Rubio’s proposal would effectively transform the individual income-tax system into a consumption-tax system, the report said. Many economists argue that taxing consumption spurs investment, jobs and economic growth. But Rubio’s plan might also inhibit growth if it’s not accompanied by radical spending cuts and if interest rates rise, the report said.

Rubio ‘Proud’

“Marco is proud that his plan cuts taxes for working families, boosts wages for everyone, creates millions of jobs, and increases incentives for work and investment,” said Alex Conant, a spokesman for the Florida senator, in an e-mail. “Of course a left-wing think tank that has been called ‘the intellectual frontmen for President Obama’s re-election campaign’ is misrepresenting Marco’s pro-growth, pro-family tax plan. Any analysis that does not account for the positive economic impact of pro-growth tax reform is worthless."

The tax policy center’s findings land in the middle of two previous analyses. One, by Citizens for Tax Justice, estimated Rubio’s tax cuts would cost $11.8 trillion over a decade; the other, by the Tax Foundation, estimated that cost at $4.1 trillion. The new analysis applied methodology similar to that used by the congressional Joint Committee on Taxation, according to the report -- though not all of Rubio’s proposals have been spelled out fully and the campaign didn’t respond to the center’s request for additional details.

Capital Gains

Rubio’s plan would scrap the long-term capital gains tax on investment profit, eliminate estate and gift taxes and reduce the existing seven individual tax brackets to three. The top rate would be 35 percent, down from the current 39.6 percent.

The plan would allow businesses -- from publicly traded corporations to partnerships and other pass-throughs -- to immediately deduct their spending on investments, while eliminating taxes on interest received and deductions on interest paid. The top corporate tax rate would be 25 percent, down from 35 percent today.

Rubio’s plan to move to a territorial system would eliminate corporate taxes on income earned overseas -- and he proposes a 6 percent “deemed repatriation” tax on some $2.1 trillion in foreign earnings on which U.S. companies have deferred taxes so far. The repatriation tax would be payable over 10 years.

Discourage Inversions

In general, Rubio’s plans would help discourage so-called corporate inversions, in which companies merge with foreign firms to move their addresses overseas and reduce their U.S. tax bills, the analysis found. However, the plan might encourage businesses to try to recharacterize their domestic income as lower-tax foreign income, the report said.

Rubio emerged from the New Hampshire primary with a fifth-place finish after what he admitted was a poor performance in a Feb. 6 debate. National polls taken before that slip had placed him in competition for second place, behind Donald Trump and statistically tied with Senator Ted Cruz.

His proposal for broad tax cuts for businesses and individuals leans heavily on an idea first championed almost four decades ago: the "X tax," according to the Tax Policy Center’s analysis. The scheme is designed to tax work, but not savings or investments.

‘Very Creative’

The X tax model is a key feature of Rubio’s proposal, said Len Burman, the tax policy center’s director, who called Rubio’s use of the idea “very creative.” But he said past Republican presidents haven’t been able to cut spending as much as Rubio must to avoid deficits under his plan.

"If the numbers added up, this would be a radical and innovative tax reform that should be taken seriously," Burman said.

Keep up with the best of Bloomberg Politics.

Get our newsletter daily.

Business

Your guide to the most important business stories of the day, every day.

You will now receive the Business newsletter

Markets

The most important market news of the day. So you can sleep an extra five minutes.

You will now receive the Markets newsletter

Technology

Insights into what you'll be paying for, downloading and plugging in tomorrow and 10 years from now.

You will now receive the Technology newsletter

Pursuits

What to eat, drink, wear and drive – in real life and your dreams.

You will now receive the Pursuits newsletter

Game Plan

The school, work and life hacks you need to get ahead.

You will now receive the Game Plan newsletter

Taken as a whole, Rubio’s proposals for changing the individual income tax would benefit top earners the most by far, according to the analysis. The top 0.1 percent of taxpayers, or those with incomes over $3.7 million, would see an average tax cut of about $930,000, representing 13.6 percent of their after-tax income. Households in the middle fifth of the income distribution would see an average tax cut of almost $1,400, or 2.5 percent of after-tax income, while the poorest fifth of households would see their taxes go down an average of about $250, boosting their after-tax income by 1.9 percent.

Obamacare Tax

Rubio proposes to scrap the 3.8 percent surcharge on investment income that high-earning Americans pay under Obamacare. The surcharge has taken the current top capital gains rate to 28.3 percent. His plan would scrap almost all itemized deductions, except for those relating to mortgage-interest payments and charitable contributions.

Rubio calls for a one-time transition tax on unrealized capital gains. TPC said it was unclear whether Rubio’s plan would eliminate taxes on other types of investments, including short-term capital gains, non-stock assets, nonqualified dividends and some interest income.

Burman called Rubio’s plan “pro-family” because it creates a child tax credit of as much as $2,500 per child that would reach single taxpayers with incomes as much as $200,000 and joint filers with as much as $400,000. It also provides an expanded Family Medical Leave Act credit.

Another Rubio proposal, to eliminate federal estate and gift taxes, “raises the risk that the resulting large concentrations of wealth would convey undue economic and political power,” the analysis said.